THE ELK HORN COAL CORPORATION v. CHEYENNE RESOURCES, INC. and PC&H CONSTRUCTION, INC.
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RENDERED:
SEPTEMBER 1, 2006; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth Of Kentucky
Court of Appeals
NO.
2005-CA-001901-MR
THE ELK HORN COAL CORPORATION
v.
APPELLANT
APPEAL FROM FLOYD CIRCUIT COURT
HONORABLE JOHN DAVID CAUDILL, JUDGE
CIVIL ACTION NO. 97-CI-00634
CHEYENNE RESOURCES, INC. and
PC&H CONSTRUCTION, INC.
APPELLEES
OPINION
AFFIRMING IN PART,
REVERSING IN PART AND REMANDING
** ** ** ** **
BEFORE:
GUIDUGLI, JUDGE; HUDDLESTON AND KNOPF, SENIOR JUDGES.1
HUDDLESTON, SENIOR JUDGE:
The Elk Horn Coal Corporation
challenges the amount of an award of prejudgment interest
granted it in a judgment of restitution.
On appeal, Elk Horn
claims that the circuit court used the wrong starting date in
calculating the amount of interest due.
Because we agree with
Elk Horn, we affirm in part, reverse in part and remand.
1
Senior Judges Joseph R. Huddleston and William L. Knopf sitting as Special
Judges by assignment of the Chief Justice pursuant to Section 110(5)(b) of
the Kentucky Constitution and Ky. Rev. Stat. (KRS) 21.580.
Elk Horn entered into a coal mining contract with
Cheyenne Resources, Inc.
The transaction turned sour, and
Cheyenne, together with PC&H Construction, Inc., (hereinafter
“Cheyenne”) sued Elk Horn in Floyd Circuit Court claiming that
Elk Horn had fraudulently induced it to enter into the contract.
After a jury trial in October 1998, Cheyenne was awarded
judgment against Elk Horn in the sum of $9.5 million.
Elk Horn
appealed to this Court and posted a supersedeas bond, thereby
staying enforcement of the judgment.
judgment.2
This Court affirmed the
Elk Horn then moved the Kentucky Supreme Court to
grant discretionary review, but that Court declined to do so.
After the Supreme Court denied discretionary review,
Cheyenne sought to enforce the judgment and requested, pursuant
to Kentucky Revised Statutes (KRS) 26A.300, a supersedeas
penalty of 10 percent of the judgment award arguing that Elk
Horn had delayed the case beyond the first appeal to this Court
when it sought discretionary review from the Supreme Court.
In
a response filed on March 15, 2001, Elk Horn argued that the
circuit court should not force it to pay the 10 percent delay
penalty because KRS 26A.300 was unconstitutional.
The circuit
court did not address Elk Horn’s constitutional challenge, and,
on March 16, 2001, awarded Cheyenne $14.5 million which included
the original award, prejudgment interest, post-judgment interest
2
1998 CA-002815-MR and 1998-CA-002375-MR (unpublished opinion rendered
February 25, 2000).
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and the 10 percent supersedeas penalty, $950,000.00.
Elk Horn
promptly satisfied the judgment and paid the supersedeas
penalty.
Elk Horn again appealed to this Court arguing that KRS
26A.300 was unconstitutional.
This Court affirmed, upholding
the supersedeas penalty,3 but the Supreme Court granted
discretionary review and ultimately held that KRS 26A.300, the
statute providing for a supersedeas penalty, was
unconstitutional.4
After the Supreme Court’s opinion became final, Elk
Horn moved the circuit court to enter a judgment of restitution
in its favor in the amount of $950,000.00.
Elk Horn also asked
for both prejudgment and post-judgment interest on the principal
amount.
A judgment of restitution was granted for the amount of
the penalty, $950,000.00, together with post-judgment interest.
Later, the circuit court awarded Elk Horn prejudgment interest
at the rate of 8 percent per annum calculated from June 9, 2005,
the date on which the Supreme Court’s opinion became final.
Unsatisfied with the judgment, Elk Horn once again
appeals to this Court where it makes three arguments in support
of reversal.
First, Elk Horn argues that when judgment is granted
for a liquidated amount, then the circuit court must award
3
2001-CA-000783-MR (unpublished opinion rendered August 9, 2002).
4
The Elk Horn Coal Corp. v. Cheyenne Resources, Inc., 163 S.W.2d 408 (Ky.
2005).
-3-
prejudgment interest as a matter of law.5
Since its claim was
for a liquidated amount, Elk Horn reasons, it was entitled to
prejudgment interest and, furthermore, the court had no
discretion in awarding it.
Not only did the court lack
discretion in awarding prejudgment interest, it also lacked
discretion in setting the amount.
According to Elk Horn, the
court had to use the date Elk Horn paid the penalty in
calculating prejudgment interest.
Second, Elk Horn points out that if a defendant in a
lawsuit pays the plaintiff a judgment award but the judgment is
later reversed, the defendant is entitled to receive the amount
paid plus interest.6
So for Elk Horn to receive full
restitution, prejudgment interest had to be included in the
award.
However, since the circuit court failed to give Elk Horn
the full amount of prejudgment interest to which it was
entitled, it denied Elk Horn full restitution.
To be made
whole, which is the objective of restitution, the court was
required, Elk Horn argues, to award it prejudgment interest from
and after March 16, 2001, the date it paid the unconstitutional
penalty.
Finally, Elk Horn insists that if denied prejudgment
interest from March 16, 2001, it would be as if it had given
5
See Nucor Corp. v. General Electric Co., 812 S.W.2d 136 (Ky. 1991), and
Shanklin v. Townsend, 434 S.W.2d 655 (Ky. 1968).
6
See Restatement of Restitution § 74, comment d (1937).
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Cheyenne an interest-free loan.
Consequently, Cheyenne would
have been unjustly enriched.
While the Supreme Court of Kentucky has not addressed
the subject of prejudgment interest often, it has consistently
held that prejudgment interest may be awarded under appropriate
circumstances.
If a claim is for an unliquidated amount, then
the circuit court may, within its discretion, award prejudgment
interest.7
But, if the claim is for a liquidated amount, as
here, then the court must award prejudgment interest.8
While it
is sometimes difficult to determine whether a claim is for a
liquidated or an unliquidated amount, in this case Cheyenne does
not dispute that Elk Horn’s claim was for a liquidated amount.
Since the amount was liquidated, Elk Horn was entitled to
prejudgment interest, and the circuit court, in fact, awarded
Elk Horn such interest.
Since Elk Horn was awarded prejudgment interest, we
are left with the question:
what starting date should have been
used in calculating the amount of prejudgment interest?
Our
research has failed to disclose a case that directly addresses
7
3D Enterprises Contracting Corp. v. Louisville and Jefferson Co.
Metropolitan Sewer District, 174 S.W.3d 440, 450 (Ky. 2005).
8
Nucor Corp. v. General Electric Co., supra, note 5, at 141.
-5-
this question.
The closest case that we have found is Alexander
Hamilton Life Insurance Company of America v. Lewis.9
In Alexander Hamilton, the Lewises’ daughter
disappeared and was thought to be dead.
When seven years had
passed since her disappearance, the Lewises sued the life
insurance company to collect the proceeds from two policies on
their daughter’s life.
The Lewises were successful, and the
insurance company paid them the proceeds from the policies.10
Sometime later, the insurance company found out that the
daughter was alive and moved to set aside the judgment.
The
circuit court did so and ordered the Lewises to pay back half
the insurance proceeds without prejudgment interest.11
Addressing the issue of prejudgment interest, the
Supreme Court held that the insurance company’s claim was for
liquidated damages and so it was entitled to prejudgment
interest.
But the Court concluded that interest should not be
awarded according to a rigid theory of compensation, but instead
should be based on notions of fairness.12
The Court reasoned
that a circuit court should take into consideration the fault of
the party who is required to pay the interest.
9
550 S.W.2d 558 (Ky. 1977).
10
Id.
11
Id. at 559.
12
Id. at 560.
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The Court
observed that when a party owes a debt and fails to pay, then
the party has deprived its creditor of the money the creditor
deserved.
Since the party was at fault, then the date on which
the debt was owed should be used to calculate the amount of
prejudgment interest.13
But, if a party received money pursuant
to a final and unappealed judgment which was later set aside,
then the party was innocent.
In that situation, prejudgment
interest should run from the date on which that party “was put
on notice of circumstances that justify . . . setting the
judgment aside.”14
In Alexander Hamilton, the Lewises were innocent
parties who received the proceeds of the life insurance policies
as the result of a judgment that was later set aside when their
daughter was found to be alive.
The Lewises did not learn that
their daughter was alive until July 25, 1971.
The Supreme Court
held that prejudgment interest should run from that date since
it was then they learned of circumstances that would justify
reversal of the judgment.15
Like the Lewises in Alexander Hamilton, Cheyenne was
an innocent party since it received the supersedeas penalty
pursuant to a judgment.
13
Id.
14
Id.
15
So prejudgment interest should have
Id.
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been awarded from the time Cheyenne was on notice of
circumstances that justified reversal of that portion of the
judgment awarding a supersedeas penalty.
Since Elk Horn
challenged the constitutionality of KRS 26A.300 before paying
the penalty, Cheyenne was on notice that the judgment awarding
the penalty could potentially be reversed.
And, since Cheyenne
had such notice, equity requires that Elk Horn receive
prejudgment interest from the date it paid the penalty now
declared unconstitutional.
We affirm that portion of the judgment of restitution
awarding prejudgment interest, but reverse that portion of the
judgment setting the date used to calculate the amount of
prejudgment interest.
This case is remanded to Floyd Circuit
Court with directions to award Elk Horn prejudgment interest in
the amount of 8 percent per annum16 from and after March 16,
2001, the date on which Elk Horn paid Cheyenne the supersedeas
penalty.
ALL CONCUR.
16
KRS 360.010(1).
1989).
See also Borden v. Martin, 765 S.W.2d 34, 35 (Ky. App.
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BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Richard C. Ward
Jeff A. Woods
Maureen D. Carman
WYATT, TARRANT & COMBS, LLP
Lexington, Kentucky
Bruce E. Cryder
Margaret A. Miller
GREENBAUM DOLL & McDONALD PLLC
Lexington, Kentucky
William S. Kendrick
FRANCIS, KENDRICK & FRANCIS
Prestonsburg, Kentucky
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